Linking Savings Groups to Banks Can Improve Member Retention

Successful Savings Groups (SGs) often run into a problem after the first couple of years. Some members, who have grown their small businesses, or who want to save for the long term, will leave and open bank accounts.

Formal Financial Services Providers (FSPs) are not always easily accessible. In this case, members may become dissatisfied or disengaged because they have outgrown the capabilities of an individual SG.

World Renew is delighted to publish a new research report entitled “Where Next After VSLA?” The report summarizes and draws conclusions from a wide variety of research sources and experiences. It focuses most fully on the successes of experiments in linking SGs to FSPs, and key success factors for SGs, FSPs and facilitating NGOs. This report will enrich and focus our Economic Livelihoods work throughout the world. World Renew has worked with local partners in 18 countries around the world to create Village Savings and Loans Associations, with proven positive impact. This work will now be expanded by adding linkage to formal Financial Service Providers where it will add value.

The report concludes that, on the whole, there is significant value to be obtained by linking SGs to FSPs. However, not all linkage works and there are many factors that will contribute to success or failure. Even if linkage is generally successful, the broader benefits of the SG can be eroded by the nature of this success.

Linkage Can Keep Savings Groups Members

World Renew will shortly be starting one or more linkage pilot projects. They will be designed to verify the value of linkage, and refine the best practices discussed in the report. While discussing the pilots, a key value of linkage emerged. World Renew’s SGs follow a Village Savings and Loans model. This was initially created by CARE International. It is also well supported by VSL Associates. Many of the more mature (2+ years old) SGs have begun to experience loss of members and diminution of the community cohesion benefits.

Loss of members doesn’t just impact the ability of a VSLA to make loans to participants. It also impacts the huge non-economic side-benefits that SGs can bring to a community. Review of the reasons for members leaving shows a significant number leave because they need more than the SG can accomplish on its own. If a local FSP is available to them, members will open their own accounts (through an accessible branch, or through mobile agents). Their savings are withdrawn, or at least reduced to minimum levels. At this point, participation in the group will cease or greatly diminish.

When a SG expands its capabilities by linking to a FSP, there is no need for members to leave. In fact, it can be much easier for members to get the larger loans or longer-term savings that they have been seeking. Banks are more likely to deal with SGs than with individual low-income rural women and men.

Linkage Can Also Lose Members

Linkage can help an SG to retain more ambitious members, or those with larger or longer-term needs. However, this benefit can be offset or even completely negated by lack of care over the use of technology. Provision of individual accounts can have the same effect.

It is essential that linkage be designed in a way that will continue to preserve the core principles of the SG. See the World Renew report section 8 for other key success factors.

Technology as Disabler

The World Renew report notes that when strong mobile technology is used in linking SGs to FSPs, some members may feel that it is no longer necessary for them to attend meetings. For example, if deposits can be made through local mobile agents, then cash doesn’t need to be taken to a monthly meeting. Instead it can be deposited at a time most convenient to the member. Thus, the member may be less inclined to attend meetings, and the well-established community benefits of the SG are compromised.

Individual Accounts as Disabler

Care must also be taken when an FSP’s provides individual savings and loan accounts, in addition to group accounts for the SG. There are benefits to individual accounts of course. But as with technology, the effect can be to discourage active engagement in the SG to the detriment of community-wide SG benefits. Design of individual products should take into account the need to preserve the SG’s constitution.

Overall, careful design of products, delivery, training and communication are essential for success. There is more to this than the SG chairperson simply going and opening an account!

World Renew hopes that you will find the report helpful. Please feel free to add comments, questions, and discussion!